 Casey
Files:
Obama, Keynes, and Pragmatism
David Galland
Managing Editor, The
Casey Report
Jan 20, 2009
On several occasions of late,
I have read or heard the phrase, "We are all Keynesians
now," an erudite way of expressing the idea that the free
market is dead. And that the fate of the global economy now relies
almost entirely on pragmatic measures yet to be taken by governments,
most notably that of the United States.
Given that the word "pragmatic"
is often used to describe President Obama, it appears that the
man of the hour has arrived just in the nick of time.
Not to be a spoilsport, but
there is much wrong with this latest entry in the thick and well-worn
journal labeled "Popular Delusions."
First and foremost, the idea
that the world's largest debtor nation should be stood up as
role model is laughable. That is like hiring the town's serial
bankrupt to run the bank. Putting aside the irony, the inherent
conflict of interest destroys any U.S. credibility as an honest
broker in the current scenario.
Secondly, while the incoming
team has done a superior job of spinning pragmatism into the
Obama brand, it is another thing altogether to actually demonstrate
the quality when the shoe leather hits the fast-moving pavement.
And, if you think about it,
even the word defies definition. I have heard Obama supporters
comment lately that "if the private sector won't spend money,
then the government has to." Like beauty, pragmatism, it
seems, is in the eye of the beholder. In the current context,
what Team Obama might consider pragmatic - soaking the successful,
slapping on an energy tax, revving up the money engines ever
higher - might be considered by others to be very un-pragmatic.
Even so, adopting the optimistic
spirit of America's new era, we'll credit the incoming president
and all those who surround him as pragmatics, in the sense that
they are the best sort of men and women who can be counted on
to make intelligent and, well, pragmatic choices in the
face of a rapidly eroding global economy.
Unfortunately, no sooner do
we hand Team Obama a laurel than we have to point out a rather
large and ugly fly in the otherwise nicely scented ointment.
It is this: if the word pragmatic isn't used as an adjective
in direct association with the word "dictator," then
it becomes all but meaningless.
That's because even if Mr.
Obama is a pragmatic, the same can hardly be said of the American
public, which, according to the law of the land, are the purported
owners and - through the ballot - operators of the economy.
To use one easily understood
example, a pragmatic president might look at the insurmountable
obligations hanging over the Social Security program and decide
that, at the least, some form of means testing might be applied
to recipients. But the voting bloc of American elderly, readily
ginned up into an elevated emotional state by the AARP and other
special-interest groups, assures that anyone proposing even modest
modifications to the program will be loudly shouted down and
find themselves in heavy waters come the next election.
And I'm not referring just
to the next presidential election cycle, which won't kick off
for another two years... but to the next congressional election
of November 2010, less than two years hence. In that election,
1/3 of the Senate and 100% of the House of Representatives will
be up for grabs.
With only history as my guide,
I'm going to hypothesize that few of Mr. Obama's supporters in
Congress, avid though they may be, will be willing to make their
reelection campaigns more difficult by supporting unpopular legislation...
no matter how pragmatic.
Sure, maybe they'll inch a
little way out on the limb during a brief honeymoon period, but
once the 24-hour-news-as-entertainment channels start in with
a vengeance, cracks in the coalition of collectivists will begin
to appear and Team Obama will turn from making "hard choices"
to the "easy giveaways" the American public requires
in exchange for continuing to support his party come November
2010.
After that, we move seamlessly
into the next presidential election cycle, and things will go
downhill from there.
Of course, this situation is
not unique to the Democrats - rather, it is an intractable and,
in time, terminal disease of our late-stage democracy itself.
The Keynesian Fallacy
Even ignoring the near impossibility
of organizing consistent and sensible government policies in
a rapidly degrading democracy, the whole idea that a government
can effectively manage an economy - Keynes' central theme - just
doesn't hold water. Despite hundreds and maybe thousands of experiments
along those lines, none has shown any real durability.
There have been some examples,
however, of long-term free market successes, the most powerful
being the early, laissez-faire days of the United States. There
are lesser examples such as Dubai in recent decades, or Hong
Kong under the British - economies where the operating manual
was thin and almost entirely supportive of wealth creation and
free markets. Were they perfect? No, because there is no such
thing as a perfect world. But in terms of creating the wealth
needed for a society to advance to a more refined stage, they
performed exceptionally well.
In sharp contrast, today's
freshly minted Keynesians call for increased penalties on success
and a steep ramping up of regulation, the very opposite of the
prescription needed.
There is another problem with
the utopian aura now surrounding Team Obama, and it's simply
that government doesn't produce anything tangible. So when it
comes time to "manage" the economy, government is left
with only a couple of tools. One is to force you and me to use
our time and capital for purposes they view as important. Bush,
for example, felt invading Iraq was a priority. Naturally, Team
Obama has a slate of fresh ideas on the best use of your money,
and say they want even more of it. I take umbrage at the notion
that I should open my wallet even further for "the public
good," especially when the perceived public good so often
runs contrary to my own beliefs. For instance, on principle,
I am against war - it is always the innocents that suffer the
most. And I am against the creation of new and expensive regulatory
structures, a government specialty.
The other tool available to
Team Obama is, of course, the creation of money. And we are now
hearing a steady drumbeat that we the people should pay no attention
to the deficits for the next few years.
To which I can only wonder,
"Isn't that exactly what's been going on for the last eight
years?"
It sure seems that way, considering
the unprecedented levels of debt already overhanging the economy.
***
There has rarely, if ever,
been a period of time where the economy of the U.S. has been
more politicized. Today it is not enough for an investor to paw
through the fundamentals and correctly identify the best - or
worst - sectors or even individual companies to be invested in
or to avoid. Success depends equally, and maybe even more so,
on correctly anticipating what actions the government is likely
to take (or not) in regards to any particular enterprise. Take
GM, for example, whose rise or demise depends to a large part
on the question whether the government will prop it up.
The FREE special report Obama's
Newer Deal by Casey Research analyzes the economic and
political climate of the incoming Obama administration, providing
a "weather forecast" that can help you prepare your
assets for a rainy day. Get it now - no cost, no obligation -
by simply
clicking here.
Jan 19, 2009
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